UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q



                 X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
                                     -------
                       THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 2003

                   TRANSITION REPORT PURSUANT TO SECTION 13 OR
                                    ---------
                  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                        For the transition period from to

                         Commission file number 1-14762

                            THE SERVICEMASTER COMPANY
             (Exact name of registrant as specified in its charter)


           Delaware                                        36-3858106
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)

3250 Lacey Road, Ste. 600, Downers Grove, Illinois            60515-1700
(Address of principal executive offices)                      (Zip Code)

                                  630-663-2000
              (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X  No   .
                                      ---   ---

Indicate  by check mark  whether  the  Registrant  is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). Yes X  No   .
                                        ---   ---

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock: 295,172,000 shares of common stock on November 5, 2003.











<PAGE>

                                  TABLE OF CONTENTS

                                                                            Page
                                                                             NO.

THE SERVICEMASTER COMPANY (Registrant) -

PART I.  FINANCIAL INFORMATION

Item 1: Financial Statements

Condensed Consolidated Statements of Income for the three and nine
   months ended September 30, 2003 and September 30, 2002                      3

Condensed Consolidated Statements of Financial Position
   as of September 30, 2003 and December 31, 2002                              4

Condensed Consolidated Statements of Cash Flows for the nine months
   ended September 30, 2003 and September 30, 2002                             5

Notes to Condensed Consolidated Financial Statements                           6

Item 2: Management Discussion and Analysis of Financial
   Condition and Results of Operations                                        13

Item 3:  Quantitative and Qualitative Disclosures About
   Market Risk                                                                22

Item 4: Controls and Procedures                                               23


PART II.  OTHER INFORMATION

Item 1:  Legal Proceedings                                                    24

Item 6:  Exhibits and Reports on Form 8-K                                     24

Signature                                                                     25







<PAGE>











                          PART I. FINANCIAL INFORMATION

                            THE SERVICEMASTER COMPANY
             CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>

                                                                         Three Months Ended          Nine Months Ended
                                                                           September 30,                September 30,
                                                                       2003          2002            2003           2002
                                                                   -----------    -----------    -----------    -----------
<S>                                                                <C>            <C>            <C>            <C>
OPERATING REVENUE .............................................   $ 1,018,263    $   987,757    $ 2,762,076    $ 2,713,490

OPERATING COSTS AND EXPENSES:
Cost of services rendered and products sold ...................       670,321        664,646      1,844,558      1,835,892
Selling and administrative expenses ...........................       221,105        197,612        637,362        576,861
Amortization expense ..........................................         1,126          2,126          4,488          6,432
Charge for impaired assets ....................................       480,670              -        480,670              -
                                                                  -----------    -----------    -----------    -----------
Total operating costs and expenses ............................     1,373,222        864,384      2,967,078      2,419,185
                                                                  -----------    -----------    -----------    -----------

OPERATING INCOME (LOSS) .......................................      (354,959)       123,373       (205,002)       294,305

NON-OPERATING  EXPENSE (INCOME):
Interest expense ..............................................        16,285         17,030         49,223         76,678
Interest and investment income ................................        (1,857)          (405)        (6,201)        (5,303)
Minority interest and other expense, net ......................         1,986          1,905          6,104          5,489
                                                                  -----------    -----------    -----------    -----------

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
    INCOME TAXES ..............................................      (371,373)       104,843       (254,128)       217,441
Provision for income taxes, 2003 includes a $98 million
    benefit relating to the impairment charge .................       (54,847)        38,828         (8,774)        79,424
                                                                  -----------    -----------    -----------    -----------


INCOME (LOSS) FROM CONTINUING OPERATIONS ......................      (316,526)        66,015       (245,354)       138,017

Income (loss) from discontinued operations, net of income taxes        (1,440)         2,068         (2,387)         4,210
                                                                  -----------    -----------    -----------    -----------
NET INCOME (LOSS) .............................................   $  (317,966)   $    68,083    $  (247,741)   $   142,227
                                                                  ===========    ===========    ===========    ===========

PER SHARE:
BASIC EARNINGS PER SHARE:
Income (loss) from continuing operations ......................   $     (1.08)   $      0.22    $     (0.83)   $      0.46

Discontinued operations, net ..................................             -            .01          (0.01)           .01
                                                                  -----------    -----------    -----------    -----------
                                                                  $     (1.08)   $      0.23    $     (0.84)   $      0.47
                                                                  ===========    ===========    ===========    ===========
SHARES ........................................................       294,119        301,093        296,233        300,805


DILUTED EARNINGS PER SHARE:
Income (loss) from continuing operations ......................   $     (1.08)   $      0.21    $     (0.83)   $      0.45

Discontinued operations, net ..................................             -            .01          (0.01)           .01
                                                                  -----------    -----------    -----------    -----------
                                                                  $     (1.08)   $      0.22    $     (0.84)   $      0.46
                                                                  ===========    ===========    ===========    ===========
SHARES ........................................................       294,119        313,649        296,233        315,155


</TABLE>




            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



                                       3
<PAGE>





                            THE SERVICEMASTER COMPANY
       CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
                                 (IN THOUSANDS)


<TABLE>

                                                                  As of Sept. 30,  As of Dec. 31,
ASSETS                                                                  2003           2002
                                                                    -----------    -----------
CURRENT ASSETS:
<S>                                                                 <C>            <C>
Cash and cash equivalents .......................................   $   171,242    $   227,177
Marketable securities ...........................................        90,039         75,194
Receivables, less allowance of $28,401 and $27,616, respectively        388,828        322,954
Inventories .....................................................        77,116         67,187
Prepaid expenses and other assets ...............................        42,762         38,879
Deferred customer acquisition costs .............................        52,028         48,419
Deferred taxes and income taxes receivable ......................       103,335        123,100
Assets of discontinued operations ...............................         2,523         22,586
                                                                    -----------    -----------
       Total Current Assets .....................................       927,873        925,496
                                                                    -----------    -----------
PROPERTY AND EQUIPMENT:
   At cost ......................................................       392,672        388,582
   Less: accumulated depreciation ...............................      (211,719)      (200,027)
                                                                    -----------    -----------
     Net property and equipment .................................       180,953        188,555
                                                                    -----------    -----------

OTHER  ASSETS:
Goodwill ........................................................     1,508,982      1,919,780
Intangible assets, primarily trade names ........................       217,026        257,781
Notes receivable ................................................        54,841         55,770
Long-term securities and other assets ...........................        85,398         67,556
                                                                    -----------    -----------
       Total Assets .............................................   $ 2,975,073    $ 3,414,938
                                                                    ===========    ===========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable ................................................   $    85,107    $    90,876
Accrued liabilities:
   Payroll and related expenses .................................        96,036         97,819
   Self-insured claims and related expenses .....................        75,873         83,225
   Other ........................................................        97,298        102,095
Deferred revenues ...............................................       394,338        397,290
Liabilities of discontinued operations ..........................        20,471         36,624
Current portion of long-term debt ...............................        29,503         31,135
                                                                    -----------    -----------
       Total Current Liabilities ................................       798,626        839,064
                                                                    -----------    -----------

LONG-TERM DEBT ..................................................       795,964        804,340

LONG-TERM LIABILITIES:
     Deferred taxes .............................................       278,147        312,500
     Liabilities of discontinued operations .....................        32,307         30,682
     Other long-term obligations ................................       126,044        109,343
                                                                    -----------    -----------
        Total Long-Term Liabilities .............................       436,498        452,525
                                                                    -----------    -----------

MINORITY INTEREST ...............................................       100,309        100,309

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Common stock $0.01 par value, authorized 1 billion shares; issued
     317,059 and 316,024 shares, respectively ...................         3,170          3,160
Additional paid-in capital ......................................     1,056,396      1,054,272
Retained earnings ...............................................        14,338        355,893
Accumulated other comprehensive income (loss) ...................         5,062           (849)
Restricted stock ................................................        (4,509)        (1,988)
Treasury stock ..................................................      (230,781)      (191,788)
                                                                    -----------    -----------
       Total Shareholders' Equity ...............................       843,676      1,218,700
                                                                    -----------    -----------
       Total Liabilities and Shareholders' Equity ...............   $ 2,975,073    $ 3,414,938
                                                                    ===========    ===========


</TABLE>


            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



                                       4
<PAGE>




                            THE SERVICEMASTER COMPANY
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                 (IN THOUSANDS)


<TABLE>

                                                                                Nine Months Ended
                                                                                   September 30,
                                                                                2003         2002
                                                                             ----------    ---------
<S>                                                                          <C>           <C>
CASH AND CASH EQUIVALENTS AT JANUARY 1 ....................................  $  227,177    $ 402,642

CASH FLOWS FROM OPERATIONS:
NET INCOME (LOSS) .........................................................    (247,741)     142,227
     Adjustments to reconcile net income to net cash flows from operations:
        (Income) loss from discontinued operations ........................       2,387       (4,210)
        Charge for impaired assets, net of tax ............................     383,152            -
        Depreciation expense ..............................................      36,972       35,932
        Amortization expense ..............................................       4,488        6,432
        Deferred income tax expense .......................................      81,500       69,990

         Change in working capital, net of acquisitions:
            Receivables ...................................................     (71,876)     (49,015)
            Inventories and other current assets ..........................     (16,495)     (31,196)
            Accounts payable ..............................................      (5,665)      (1,433)
            Deferred revenues .............................................      (2,488)      34,222
            Accrued liabilities ...........................................        (443)      27,349
            Other, net ....................................................       2,156       12,640
                                                                              ---------    ---------
NET CASH PROVIDED FROM OPERATIONS .........................................     165,947      242,938
                                                                              ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Property additions ..................................................     (30,059)     (41,352)
      Sale of equipment and other assets ..................................       8,581        1,976
      Business acquisitions, net of cash acquired .........................     (24,297)     (10,132)
      Notes receivable, financial investments and securities ..............     (15,155)      (1,512)
      Proceeds from business sales ........................................      21,300       30,500
                                                                              ---------    ---------
NET CASH USED FOR INVESTING ACTIVITIES ....................................     (39,630)     (20,520)
                                                                              ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
      Net payments of debt ................................................     (24,802)    (338,129)
      Purchase of ServiceMaster stock .....................................     (56,768)     (14,529)
      Shareholders' dividends .............................................     (93,814)     (91,374)
      Other, net ..........................................................      11,392       15,385
                                                                              ---------    ---------
NET CASH USED FOR FINANCING ACTIVITIES ....................................    (163,992)    (428,647)
                                                                              ---------    ---------


CASH USED FOR DISCONTINUED OPERATIONS .....................................     (18,260)     (26,120)
                                                                              ---------    ---------

CASH DECREASE DURING THE PERIOD ...........................................     (55,935)    (232,349)
                                                                              ---------    ---------

CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 .................................   $ 171,242    $ 170,293
                                                                              =========    =========

</TABLE>



            SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



                                       5
<PAGE>





                            THE SERVICEMASTER COMPANY
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1: The condensed  consolidated financial statements include the accounts of
ServiceMaster and its subsidiaries,  collectively  referred to as "the Company".
Intercompany transactions and balances have been eliminated in consolidation.

NOTE 2: The condensed  consolidated  financial  statements have been prepared by
the Company in accordance with accounting  principles  generally accepted in the
United States (GAAP) and pursuant to the rules and regulations of the Securities
and Exchange  Commission.  The Company  suggests  that the  quarterly  condensed
consolidated  financial  statements be read in conjunction with the consolidated
financial  statements  and the notes thereto  included in the  Company's  latest
Annual  Report to  Shareholders  and the  Annual  Report to the  Securities  and
Exchange  Commission  on Form 10-K for the year ended  December  31,  2002.  The
condensed consolidated financial statements reflect all adjustments,  which are,
in the  opinion  of  management,  necessary  for the  fair  presentation  of the
financial  position,  results  of  operations  and cash  flows  for the  interim
periods.  The results of operations for any interim  period are not  necessarily
indicative of the results which might be achieved for a full year.

NOTE 3: The Company has identified the most important  accounting  policies with
respect to its  financial  position  and  results of  operations.  These  relate
primarily to revenue recognition and the deferral of customer acquisition costs.
The following  revenue  recognition  policies  have not changed since  year-end.
Revenues  from  lawn  care,   pest  control,   liquid  and  fumigation   termite
applications,  as well as  heating/air  conditioning  and plumbing  services are
recognized as the services are provided.  Revenues from landscaping services are
recognized as they are earned based upon agreed monthly contract arrangements or
when services are performed for non-contractual arrangements.  Revenues from the
Company's  commercial  installation  contracts,  primarily  relating to heating,
ventilation  and air  conditioning  (HVAC),  are recognized on the percentage of
completion method in the ratio that total incurred costs bear to total estimated
costs. The Company eradicates  termites through the use of baiting stations,  as
well as through  non-baiting  methods  (e.g.,  fumigation or liquid  treatment).
Termite  services  using  baiting  stations  as well as home  warranty  services
typically are sold through  annual  contracts for a one-time,  upfront  payment.
Direct costs of these contracts  (ongoing service costs for termite  completions
and claim costs for warranty  contracts)  are expensed as incurred.  The Company
recognizes  revenue  over the  life of  these  contracts  in  proportion  to the
expected  direct  costs.  Revenue  from trade  name  licensing  arrangements  is
recognized when earned.  Franchised  revenues (which in the aggregate  represent
approximately  three percent of  consolidated  revenue)  consist  principally of
continuing monthly fees based upon the franchisee  revenue.  Monthly fee revenue
is recognized when the related franchise revenue is reported from the franchisee
and  collectibility is assured and all material services or conditions  relating
to the sale  have been  substantially  performed.  Total  franchise  fee  income
(excluding  trade name  licensing)  represented  3.0  percent and 8.4 percent of
consolidated  operating  income (loss) for the three months ended  September 30,
2003 and 2002, respectively and 14.8 percent and 9.7 percent for the nine months
ended September 30, 2003 and 2002, respectively.  The portion of total franchise
fee income  related to initial fees received  from the sale of a franchise  were
immaterial to the Company's consolidated financial statements for all periods.

Customer  acquisition costs, which are incremental and direct costs of obtaining
the  customer,  are  deferred  and  amortized  over the life of the  contract in
proportion to revenue  recognized.  These costs include  sales  commissions  and
direct selling costs which can be shown to have resulted in a successful sale.

TruGreen ChemLawn has significant seasonality to its business. In the winter and
early spring,  this business  sells a series of lawn  applications  to customers
which are rendered  primarily in March through  October.  The Company incurs and
defers  incremental  selling expenses at the beginning of the year that directly
relate to  successful  sales for which the revenues  will be recognized in later
quarters. This business also defers, on an interim basis, pre-season advertising
costs and annual repairs and  maintenance  procedures  that are performed in the
first  quarter.  These  costs  are  deferred  and  recognized  approximately  in
proportion  to the contract  revenue  over the  production  season,  and are not
deferred beyond the calendar year-end.


                                       6
<PAGE>


As noted  above,  TruGreen's  pre-season  advertising  costs  are  deferred  and
recognized  approximately  in proportion to the contract  revenue over the year.
Terminix also defers its  advertising  costs in the first quarter and recognizes
the expense  over the year.  These costs are not  deferred  beyond the  calendar
year-end. The cost of direct-response advertising at Terminix is capitalized and
amortized  over its expected  period of future  benefits.  This  direct-response
advertising consists primarily of direct-mail promotions,  for which the cost is
capitalized and amortized over the one-year customer contract life.

The preparation of the financial  statements requires management to make certain
estimates and assumptions  required under GAAP which may differ  materially from
the  actual  results.  Disclosures  in the  2002  Annual  Report  presented  the
significant  areas that require the use of management's  estimates and discussed
how management formed its judgment.  The areas discussed  included the allowance
for receivables,  accruals for self-insured retention limits related to medical,
workers compensation, auto and general liability insurance, the possible outcome
of litigation and the useful lives for depreciation and amortization expense and
the valuation of tangible and  intangible  assets.  In 2003,  there have been no
changes in the significant  areas that require estimates or in the methodologies
which underlie these estimates.  As discussed in Note 5, in the third quarter of
2003,  the  Company  recorded a charge to reduce the value of its  goodwill  and
intangible assets.

NOTE 4: The  Company  carries  insurance  policies on  insurable  risks which it
believes to be appropriate.  The Company  generally has  self-insured  retention
limits and has obtained fully insured layers of coverage above such self-insured
retention  limits.  Accruals  for  self-insurance  losses  are made based on the
Company's claims experience and actuarial  assumptions.  The Company has certain
liabilities with respect to existing or potential  claims,  lawsuits,  and other
proceedings.  The Company accrues for these liabilities when it is probable that
future costs will be incurred and such costs can be  reasonably  estimated.  Any
resulting  adjustments,  which could be  material,  are  reflected in the period
identified.

NOTE 5: In accordance with Statement of Financial  Accounting  Standards  (SFAS)
142  "Goodwill  and Other  Intangible  Assets",  the  Company  discontinued  the
amortization  of goodwill  and  indefinite  lived  intangible  assets  effective
January 1, 2002.  Goodwill  and  intangible  assets that are not  amortized  are
subject to assessment for  impairment by applying a fair-value  based test on an
annual  basis  or  more  frequently  if   circumstances   indicate  a  potential
impairment.  The fair value of  goodwill  and other  intangible  assets has been
determined after reviewing several valuation  techniques and primarily utilizing
the present value of future cash flows. The Company's annual  assessment date is
in the fourth  quarter.  However,  based on recent events such as certain branch
closures in American  Residential  Services (ARS) and the sale of Trees Inc., as
well as  underlying  trends  in the  Company's  HVAC,  plumbing  and  commercial
landscape  businesses,  management  concluded  in the  third  quarter  that  the
operations  were not  expected to able to generate the  necessary  cash flows to
support the current value of goodwill and intangible assets. In the beginning of
2003, management believed that the significant declines in these businesses were
an anomaly and that the  operations,  with an  anticipated  good summer  season,
would show ongoing  improvement  which would validate the amount of goodwill and
intangible  assets on the  financial  statements.  However,  these recent events
coupled with the earlier  decline have caused  management  to conclude  that the
businesses  are  unlikely  to meet  previous  projections  which  supported  the
valuation of the intangibles and therefore, an impairment charge is necessary at
this time.  The Company had discussed  such events and trends in previous  press
releases and periodic filings with the Securities and Exchange Commission.

A valuation  was performed  during the third quarter of 2003 which  incorporated
third quarter 2003 performance.  Based on the evaluation, it was determined that
the fair value of the  Company's  goodwill and  intangible  assets was less than
their carrying value. The Company used an independent  valuation firm to confirm
the Company's  assessment of the fair value of its goodwill and other intangible
assets. In the third quarter of 2003, the Company recorded a non-cash impairment
charge  totaling  $481  million  pre-tax or $383  million net of tax. The charge
consisted  of $224  million at  American  Residential  Services,  $68 million at
American  Mechanical  Services  and  $189  million  at  TruGreen  Landcare.  The
impairment charge included a portion of goodwill that was not deductible for tax
purposes, resulting in a tax benefit of $98 million, or approximately 20 percent
of the pre-tax charge amount.  The following  table  summarizes the goodwill and
intangible asset activity and balances:



                                       7
<PAGE>

<TABLE>


(IN THOUSANDS)                    As of                                                                                As of
                                 Dec. 31,                          Reclass-         Impairment                       Sept. 30,
                                  2002            Additions       ification (3)       Charges         Amort.           2003
                               -------------    -------------    ------------    ---------------    -----------    -------------
<S>     <C>                     <C>                 <C>              <C>            <C>                  <C>       <C>
Goodwill(1)                     $1,919,780          $30,597          $4,816         $(446,211)           $  -      $ 1,508,982
Trade names(1)                     238,550                -               -           (33,757)              -          204,793


Other intangible assets             78,284            3,008        (38,554)            (6,008)              -           36,730
Accumulated amortization(2)       (59,053)                -          33,738              5,306        (4,488)         (24,497)
                               -------------    -------------    ------------    ---------------    -----------    -------------
Net other intangibles               19,231            3,008         (4,816)              (702)        (4,488)           12,233
                               -------------    -------------    ------------    ---------------    -----------    -------------
Total                           $2,177,561          $33,605           $   -        $ (480,670)       $(4,488)       $1,726,008
                               =============    =============    ============    ===============    ===========    =============
</TABLE>

(1)  Not subject to amortization.
(2)  Annual amortization expense of approximately $6 million in 2003 is expected
     to decline over the next five years.
(3)  In the first  quarter,  the Company  reviewed its  intangible  balances and
     removed  the  fully  amortized  assets as well as the  related  accumulated
     amortized balance on the financial statements.  During this process certain
     reclassifications between categories were made.


The table  below  presents,  by  segment,  the  goodwill  that is not subject to
amortization:

  (IN THOUSANDS)                   Sept. 30,          Dec. 31,
                                     2003               2002
                                 -------------     --------------
  TruGreen                          $647,936           $780,043
  Terminix                           620,200            618,055
  American Home Shield                72,085             72,085
  ARS/AMS                             56,171            337,491
  Other Operations                   112,590            112,106
                                 -------------     --------------
  Total                           $1,508,982         $1,919,780
                                 =============     ==============


NOTE 6: Basic  earnings  per share is computed by dividing  income  available to
common stockholders by the weighted-average number of shares outstanding for the
period.  The  weighted-average  common shares for the diluted earnings per share
calculation includes the incremental effect related to outstanding options whose
market price is in excess of the exercise  price.  Shares  potentially  issuable
under  convertible  securities have been  considered  outstanding in the diluted
earnings  per share  calculations  if their  impact is  dilutive.  In  computing
diluted  earnings  per  share,   the  after-tax   interest  expense  related  to
convertible  debentures is added back to net income in the numerator,  while the
diluted shares in the denominator include the shares issuable upon conversion of
the  debentures.  Due to the losses incurred for the three and nine months ended
September  30,  2003,  the  denominator  does not  include  the effects of share
equivalents  as it would  result in a less  dilutive  computation.  As a result,
diluted earnings per share are the same as basic earnings per share.

The following  table  reconciles  both the numerator and the  denominator of the
basic earnings per share from continuing operations computation to the numerator
and the denominator of the diluted earnings per share from continuing operations
computation.
<TABLE>


(IN THOUSANDS, EXCEPT PER SHARE DATA)                       Three Months                          Three Months
                                                      Ended September 30, 2003              Ended September 30, 2002
                                                  --------------------------------       ------------------------------
                                                   Income
CONTINUING OPERATIONS:                             (Loss)       Shares      EPS           Income      Shares     EPS
----------------------                           ----------   ---------  --------       ----------  ---------  -------
<S>                                              <C>            <C>        <C>            <C>         <C>        <C>
 Basic earnings per share                        $(316,526)     294,119    $(1.08)        $66,015     301,093    $0.22
                                                                           =======                               =====
 Effect of dilutive securities, net of tax:
  Options                                                             -                                 4,356
  Convertible securities                                  -           -                      1,195      8,200
                                                  ----------   ---------                 ----------  ---------
 Diluted earnings per share                      $(316,526)     294,119    $(1.08)         $67,210    313,649    $0.21
                                                  ==========   =========  ========       ==========  =========  =======


</TABLE>




                                       8
<PAGE>



<TABLE>


                                                             Nine Months                           Nine Months
                                                       Ended September 30, 2003              Ended September 30, 2002
                                                   --------------------------------       ------------------------------
                                                    Income
CONTINUING OPERATIONS:                              (Loss)       Shares      EPS           Income      Shares     EPS
----------------------                             ----------   ---------  --------       ----------  ---------  -------
<S>                                                 <C>          <C>       <C>            <C>          <C>        <C>
 Basic earnings per share                           $(245,354)   296,233   $(0.83)        $138,017     300,805    $0.46
                                                                           =======                                =====
 Effect of dilutive securities, net of tax:
  Options                                                              -                                 6,150
  Convertible securities                                   -           -                      3,585      8,200
                                                   ----------   ---------                 ----------  ---------

 Diluted earnings per share                        $(245,354)    296,233   $(0.83)         $141,602    315,155    $0.45
                                                   ==========   =========  ========       ==========  =========  =======
</TABLE>


NOTE 7: In 2003, the Company  adopted SFAS 145,  "Rescission of FASB  Statements
No.  4,  44  and  64,   Amendment  of  FASB  Statement  No.  13,  and  Technical
Corrections".  The primary impact to the Company of SFAS 145 is that it rescinds
SFAS 4 which required all material gains and losses from the  extinguishment  of
debt to be classified as  extraordinary  items.  SFAS 145 requires that the more
restrictive  criteria of Accounting  Principles  Board Opinion No. 30 be used to
determine whether such gains or losses are extraordinary.  In the second quarter
of 2002, the Company  recorded an  extraordinary  loss of $.03 per diluted share
($15 million pre-tax,  $9 million  after-tax) from the early  extinguishment  of
debt. As a result of the Company's  adoption of SFAS 145 in 2003,  this loss has
been  reclassified  into  interest  expense,  thereby  reducing  the  previously
reported 2002 diluted earnings per share from continuing  operations by the same
amount.

Beginning  in 2003,  the Company is  accounting  for employee  stock  options as
compensation  expense in accordance  with SFAS 123,  "Accounting for Stock-Based
Compensation."  SFAS 148 "Accounting  for Stock-Based  Compensation - Transition
and Disclosure,  an amendment of FASB Statement No. 123",  provides  alternative
methods  of  transitioning  to the fair value  based  method of  accounting  for
employee  stock  options  as  compensation  expense.  The  Company  is using the
"prospective method" of SFAS 148 and is expensing the fair value of new employee
option  grants  awarded  subsequent  to  2002.  If  the  Company  continues  its
historical   pattern  of  option   granting,   the  impact  is  expected  to  be
approximately  $.005 per share in 2003,  growing to approximately $.03 per share
over five years.

Prior to 2003,  the Company  accounted  for  employee  share  options  under the
intrinsic  method of  Accounting  Principles  Board Opinion No. 25, as permitted
under GAAP. Had compensation  expense for employee options been determined under
the fair value based  method of SFAS 123,  proforma  reported net income and net
earnings per share would reflect the following:

<TABLE>


                                                     Three Months Ended                  Nine Months Ended
                                                        September 30,                      September 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA)              2003               2002              2003            2002
                                              -------------------------------------------------------------------
<S>                                               <C>                   <C>           <C>               <C>
Net income (loss) as reported                     $(317,966)            $68,083       $(247,741)        $142,227

Add back:  Stock-based compensation
  expense included in reported net income,
  net of related tax effects                             233                  -              710               -

Deduct:  Stock-based compensation
  expense   determined   under   fair  value
method, net of related tax effects                    (1,922)            (1,894)          (5,683)         (5,682)
                                              ---------------    ---------------    -------------    ------------
Proforma net income (loss)                        $(319,655)            $66,189       $(252,714)        $136,545
                                              ===============    ===============    =============    ============

Basic Earnings Per Share:
  As reported                                        $(1.08)              $0.23          $(0.84)           $0.47

  Proforma                                           $(1.09)              $0.22          $(0.85)           $0.45

Diluted Earnings Per Share:
  As reported                                        $(1.08)              $0.22          $(0.84)           $0.46

  Proforma                                           $(1.09)              $0.21          $(0.85)           $0.44

</TABLE>



NOTE  8:  In  January  2003,  the  FASB  issued  FASB   Interpretation  No.  46,
"Consolidation   of   Variable   Interest   Entities"   (FIN  46).   Under  this
Interpretation,  certain  entities known as "Variable  Interest  Entities" (VIE)
must be  consolidated by the "primary  beneficiary"  of the entity.  The primary
beneficiary is generally


                                       9
<PAGE>


defined as having the  majority of the risks and rewards  arising  from the VIE.
For VIE's in which a significant (but not majority)  variable  interest is held,
certain  disclosures  are required.  The original  effective date for FIN 46 was
deferred  and the Company is now  required to apply the  requirements  of FIN 46
starting  with its fourth  quarter  2003  financial  statements.  The Company is
presently  assessing  the  impact  of this  Interpretation;  however,  it is not
expected to have a material  impact on the  Consolidated  Financial  Statements.
Based on information as of September 30, 2003,  adoption of FIN 46 in 2003 could
result in  approximately  $53  million of real  estate  operating  leases  being
included on the balance sheet as assets with associated debt.


NOTE 9: In the Condensed Consolidated Statements of Cash Flows, the caption Cash
and  Cash  Equivalents   includes   investments  in  short-term,   highly-liquid
securities having a maturity of three months or less.  Supplemental  information
relating to the  Condensed  Consolidated  Statements  of Cash Flows for the nine
months ended September 30, 2003 and 2002 is presented in the following table:

                                           (IN THOUSANDS)
                                         2003           2002
                                    ------------    ------------
CASH PAID OR (RECEIVED) FOR:
Interest expense..................  $    53,698     $    83,751
Interest and dividend income......  $    (6,365)    $    (8,195)
Income taxes......................  $     6,081     $    36,629

The 2002  interest  paid  includes  $15 million  (pre-tax)  related to the early
extinguishment of debt. The remaining decrease in interest paid reflects reduced
debt levels and lower  interest  rates in 2003. The tax payment in 2002 resulted
from the gain on the sale of the Management Services business.

NOTE 10: Total  comprehensive  income (loss) was ($317)  million and $71 million
for the three months ended September 30, 2003 and 2002,  respectively and ($242)
million and $142 million for the nine months ended  September 30, 2003 and 2002,
respectively.  Total comprehensive  income (loss) includes primarily net income,
changes in  unrealized  gains and losses on  marketable  securities  and foreign
currency translation balances.

NOTE 11: The Company has an agreement  which provides for the ongoing  revolving
sale of a  designated  pool of  accounts  receivable  of TruGreen  ChemLawn  and
Terminix to a wholly owned, bankruptcy-remote subsidiary,  ServiceMaster Funding
LLC.  ServiceMaster  Funding LLC has entered into an agreement to transfer, on a
revolving  basis,  an  undivided  percentage  ownership  interest  in a pool  of
accounts receivable to unrelated third party purchasers.  ServiceMaster  Funding
LLC retains an undivided  percentage interest in the pool of accounts receivable
and bad debt losses for the entire  pool are  allocated  first to this  retained
interest.  At September  30, 2003 and 2002,  there were no  receivables  sold to
third  parties  under  this  agreement.   However,  the  Company  may  sell  its
receivables in the future, which would provide an additional funding source. The
agreement  is a  364-day  facility  that  is  renewable  at  the  option  of the
purchasers.  The Company may sell up to $65 million of its  receivables to these
purchasers in the future and  therefore  has  immediate  access to cash proceeds
from these sales. The amount of the eligible  receivables varies during the year
based  on  seasonality  of the  business  and  will at times  limit  the  amount
available to the Company.

NOTE 12: In September 2003, the Company sold the assets and related  operational
obligations  of Trees,  Inc.,  the utility line clearing  operations of TruGreen
LandCare,  to an independent  subsidiary of Asplundh Subsidiary Holdings,  Inc.,
for  approximately  $20 million in cash. The impact of the sale was not material
to the Company's  Consolidated Financial Statements for 2003. The results of the
utility line  clearing  operations  of Trees,  Inc.  have been  reclassified  as
"Discontinued  Operations" and are not included in continuing operations.  Prior
year  earnings  per share from  continuing  operations  in the  quarter and nine
months were reduced $.01 to reflect the reclassification of the divested utility
line clearing business as discontinued operations.

In October 2001, the Company's Board of Directors approved a series of strategic
actions,  which were the  culmination of an extensive  portfolio  review process
that was  initiated  in the first  quarter  of 2001.  As part of this  portfolio
review,  the Company sold or exited certain  non-strategic  or  under-performing
businesses in the fourth  quarter of 2001 and third quarter of 2002. The results
of  these  discontinued  business  units  have  been  separately  classified  as
"Discontinued Operations" in the accompanying financial statements.  The Company
continues to carry certain assets on its financial  statements relating to these
operations.

                                       10
<PAGE>


Management's  intent is to collect  the  outstanding  receivables.  The  Company
believes that the remaining assets are presented at their net realizable  value.
In addition,  reserves and accrual  balances remain on the financial  statements
relating  to these  operations.  Cash  payments in the first nine months of 2003
include an adjustment to the sales price of a prior year disposition,  which was
expensed in 2002. The remaining balances are outlined in the table below.

In the  fourth  quarter  of  2001,  the  Company  recorded  a charge  for  asset
impairments  and  other  items  which  included   accruals  for  residual  value
guarantees on leased properties,  severance for former executives and terminated
employees, and other costs.

The table below  summarizes the activity  during the nine months ended September
30, 2003 for the remaining liabilities from the discontinued  operations and the
reserves for items recorded in the fourth quarter of 2001. The Company  believes
that the remaining reserves continue to be adequate and reasonable.

<TABLE>


         (IN THOUSANDS)                     Balance at          Cash                           Balance at
                                           December 31,       Payments         Income/         Sept. 30,
                                               2002           or Other        (Expense)           2003
                                          ---------------    -----------     -------------    -------------
         Remaining liabilities from
           discontinued operations
         <S>                                  <C>               <C>               <C>             <C>
              LandCare Construction           $14,000           $6,600            $ -             $7,400
              LandCare utility line
                 clearing business (1)          6,300              N/A            N/A             11,800
              Certified Systems, Inc.          13,600            1,900                            11,700
              Management Services               1,600            1,200                               400
              International businesses         21,400           10,300         (1,000)            12,100
              Other                            10,400            1,000                             9,400
         Reserves related to strategic
           actions in the fourth
           quarter of 2001                    $15,500           $2,700           $900            $11,900

</TABLE>


(1)  In  September  2003,  the Company  sold the assets and related  operational
     obligations  of Trees,  Inc.,  the  utility  line  clearing  operations  of
     TruGreen LandCare.  The Company retained certain  liabilities in connection
     with the sold operations.


NOTE 13: In the  ordinary  course,  the Company is subject to review by domestic
and foreign taxing authorities,  including the Internal Revenue Service ("IRS").
From  1986  through  1997 most  operations  of the  Company  were  conducted  in
partnership  form,  free of federal  corporate  income  tax. In 1997 the Company
converted from  partnership to corporate form.  During that period,  the Company
was not reviewed by the IRS. In 2003, the IRS notified the Company of its intent
to examine the  Company's  consolidated  income tax  returns for 2002,  2001 and
2000. The Company  expects the IRS to complete its examination in early 2005. As
with any review of this nature,  the outcome of the IRS examination is not known
at  this  time.  The  Company  believes  it has  recorded  the  appropriate  tax
provision, tax liabilities and deferred tax accounts.

NOTE 14:  The  business  of the  Company is  conducted  through  five  operating
segments:   TruGreen,   Terminix,   American  Home  Shield,  ARS/AMS  and  Other
Operations.  In accordance with SFAS 131, the Company's  reportable segments are
strategic  business units that offer different  services.  The TruGreen  segment
provides  residential and commercial lawn care and landscaping  services through
the TruGreen  ChemLawn and TruGreen  LandCare  companies.  The Terminix  segment
provides  termite  and pest  control  services  to  residential  and  commercial
customers.  The  American  Home  Shield  segment  provides  home  warranties  to
consumers that cover HVAC, plumbing and other home systems and appliances.  This
segment also  includes  home  inspection  services  provided by  AmeriSpec.  The
ARS/AMS  segment  provides HVAC and plumbing  installation  and repair  services
provided under the ARS Service Express,  American Mechanical Services and Rescue
Rooter  brand  names.  The  Other  Operations  segment  includes  the  franchise
operations  of  ServiceMaster  Clean and Merry  Maids,  which  provide  disaster
restoration  and  cleaning  services  as  well  as  the  Company's  headquarters
operations  which  provides  various  technology,  marketing,  finance and other
support services to the business units. Segment information is presented below.

                                       11
<PAGE>



<TABLE>


(IN THOUSANDS)                               Three Months          Three Months           Nine Months          Nine Months
                                           Ended Sept. 30,        Ended Sept. 30,       Ended Sept. 30,      Ended Sept. 30,
                                                 2003                  2002                   2003                2002
------------------------------------------------------------------------------------------------------------------------------
Operating Revenue:
<S>                                           <C>                    <C>                  <C>                  <C>
  TruGreen                                    $418,106               $395,811             $1,056,943           $1,015,766
  Terminix                                     246,714                235,414                733,208              712,339
  American Home Shield                         132,096                121,639                352,469              323,995
  ARS/AMS                                      181,538                192,721                505,948              549,891
  Other Operations                              39,809                 42,172                113,508              111,499
------------------------------------------------------------------------------------------------------------------------------
Total Operating Revenue                     $1,018,263               $987,757             $2,762,076           $2,713,490
==============================================================================================================================

Operating Income (Loss):
  TruGreen (1)                              $(117,148)                $74,582              $(57,739)             $145,586
  Terminix                                      32,461                 25,359                107,886              107,584
  American Home Shield                          21,602                 19,715                 52,923               40,904
  ARS/AMS (1)                                (284,482)                  7,736              (281,814)               15,041
  Other Operations                             (7,392)                (4,019)               (26,258)             (14,810)
------------------------------------------------------------------------------------------------------------------------------
Total Operating Income (Loss) (1)           $(354,959)               $123,373             $(205,002)             $294,305
==============================================================================================================================

</TABLE>

(1)  In the third  quarter of 2003,  the Company  recorded a  non-cash,  pre-tax
     impairment  charge of $481 million  related to its goodwill and  intangible
     assets.  Approximately  $189 million of the charge is  associated  with the
     TruGreen  LandCare  operations  reported in the TruGreen  segment,  and the
     remaining $292 million relates to the ARS/AMS segment.
<TABLE>



                                                                 As of                    As of
                                                            Sept. 30, 2003            Dec. 31, 2002
---------------------------------------------------------------------------------------------------
Identifiable Assets:
<S>                                                            <C>                      <C>
  TruGreen                                                     $960,694                 $1,053,099
  Terminix                                                      835,241                    841,437
  American Home Shield                                          413,499                    376,059
  ARS/AMS                                                       189,470                    489,366
  Other Operations (and discontinued businesses)                576,169                    654,977
---------------------------------------------------------------------------------------------------
Total Identifiable Assets                                    $2,975,073                 $3,414,938
===================================================================================================

</TABLE>

                                       12
<PAGE>





      MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                                 OF OPERATIONS


RESULTS OF OPERATIONS

THIRD QUARTER 2003 COMPARED TO THIRD QUARTER 2002

CONSOLIDATED REVIEW

Revenue for the third  quarter of 2003 was $1.02  billion,  three  percent above
2002.  The Company  reported a net loss from  continuing  operations  in 2003 of
($317)  million and a loss from  discontinued  operations of ($1)  million.  The
third quarter net loss of ($318) million in 2003 compared with net income of $68
million in 2002 and diluted  earnings  per share was a ($1.08)  loss in 2003 and
$.22 in 2002.

Diluted  earnings  per share from  continuing  operations  for the quarter was a
($1.08) loss in 2003 compared with $.21 in 2002. The diluted  earnings per share
for 2003 includes a non-cash  impairment charge of $1.30 per share ($481 million
pre-tax,  $383  million  after-tax).  The prior  year  earnings  per share  from
continuing  operations  for  the  quarter  were  reduced  $.01  to  reflect  the
reclassification  of the divested utility line clearing business as discontinued
operations.  Operating  income for the third  quarter  2003 was a loss of ($355)
million,  compared with income of $123 million in 2002. The 2003 figure includes
the $481 million non-cash  impairment  charge.  The increase in operating income
before the charge reflects a strong profit increase at Terminix,  increased lawn
care production at TruGreen, continued growth at American Home Shield, offset by
the impact of the  impairment  charge and reduced  profitability  in  TruGreen's
landscaping operations and the American Mechanical Services operations.

In the  third  quarter,  the  Company  recorded  a  non-cash  impairment  charge
associated with the goodwill and intangible  assets at its American  Residential
Services  (ARS),  American  Mechanical  Services  (AMS)  and  TruGreen  LandCare
business units of $481 million pre-tax which is $383 million  after-tax or $1.30
per share. In accordance with Statement of Financial Accounting Standards (SFAS)
142 "Goodwill and Other Intangible Assets",  goodwill and intangible assets that
are not  amortized  are  subject to  assessment  for  impairment  by  applying a
fair-value  based test on an annual basis or more  frequently  if  circumstances
indicate a potential impairment. Based on recent events and underlying trends in
its HVAC,  plumbing and commercial  landscape  business,  the Company determined
these businesses were unlikely to meet previous management  projections.  In the
beginning of 2003,  management  believed that the significant  declines in these
businesses  were an anomaly and that the  operations,  with an anticipated  good
summer season, would show ongoing improvement which would validate the amount of
goodwill and  intangible  assets on the  financial  statements.  However,  these
recent  events  coupled  with the  earlier  decline  have caused  management  to
conclude that the  businesses  are unlikely to meet previous  projections  which
supported the valuation of the intangibles and therefore,  an impairment  charge
is necessary at this time.  The Company had discussed  such events and trends in
previous  press  releases and periodic  filings with the Securities and Exchange
Commission.  In the second  quarter of 2003, the Company's Form 10-Q stated that
management  may complete an assessment of goodwill and other  intangible  assets
relating  to the  ARS and AMS  businesses  in the  third  quarter.  The  Company
announced the sale of its utility line clearing  operations of TruGreen LandCare
in the third quarter of 2003. This operation,  which reported  approximately $90
million in revenue  and was  profitable  in 2002,  had  experienced  significant
declines in  profitability  in  subsequent  quarters.  This sale,  combined with
declining  profitability in the base maintenance business, led to the impairment
charge.

Nonetheless,  a number of the Company's  businesses showed  encouraging signs in
the third quarter.  Customer counts at TruGreen ChemLawn  increased four percent
relative to last year and its  operating  income was at the highest level of any
quarter in the last three years.  Terminix is turning around a difficult year as
lead flow is returning  back to normal.  American  Home Shield and the franchise
businesses  continued to produce strong results.  The Company reported  earnings
growth at ARS as operating  income  increased  approximately $2 million over the
prior year. The  improvement  in these  businesses  contributed  $.03 a share to
earnings per share. However,  lower earnings at TruGreen LandCare and AMS offset
this  growth  by  $.02 a share  relative  to  last  year  as  well as  increased
investments in enterprise  initiatives.  While these trends may provide momentum
going into the fourth quarter and 2004,  the Company  continues to expect margin
pressures  from various  costs such as  insurance  costs.  Insurance  costs have
increased

                                       13
<PAGE>


approximately  $.03 a share in 2003 and the Company would expect  another $.03 a
share of increases in 2004.  Management has also reduced  variable  compensation
significantly  in  2003 as a  result  corresponding  to  support  its  financial
results, which are expected to need funding in 2004.

Based on the Company's current  performance and market  conditions,  the Company
believes   that  its  earnings  per  share  for  the  fourth   quarter  will  be
approximately  $.08 to $.09. The Company plans to give guidance for 2004 when it
reports full year 2003 results in February 2004.

Cost of  services  rendered  and  products  sold  increased  one percent for the
quarter and  decreased as a  percentage  of revenue to 65.8 percent in 2003 from
67.3 percent in 2002. This decrease reflects a change in the mix of the business
as American  Home Shield,  TruGreen  ChemLawn and Terminix  increased in size in
relationship to the overall business of the Company.  These businesses generally
operate at higher gross margin levels than the rest of the  business,  but incur
somewhat higher selling and administrative  expenses as a percentage of revenue.
Selling and  administrative  expenses  increased  12 percent and  increased as a
percentage  of revenue to 21.7 percent for the quarter in 2003 from 20.0 percent
in 2002. The increase in selling and administrative  expenses primarily reflects
the change in business mix described above, as well as increased expenditures on
sales and marketing.

Net interest expense  decreased $2 million from 2002,  reflecting lower interest
expense  resulting  from  reduced  rates  and  higher  investment   income.  The
comparability  of the  effective tax rate is impacted by the  impairment  charge
recorded  in the third  quarter of 2003 and the use of prior year net  operating
losses in 2002.  The  effective tax rate for 2003 and 2002 was 15 percent and 37
percent, respectively. The impairment charge recorded in 2003 included a portion
of goodwill that was not deductible for tax purposes  resulting in a tax benefit
of $98 million,  or approximately 20 percent of the pre-tax impairment charge of
$481 million,  while the 2002 rate included the one-time  benefit from utilizing
the prior year net operating  losses of the  ServiceMaster  Home Service  Center
operations  which resulted in a reduction in the tax provision of  approximately
$2 million.


SEGMENT REVIEW

The TruGreen segment includes lawn care operations  performed under the TruGreen
ChemLawn  brand  name and  landscape  maintenance  services  provided  under the
TruGreen  LandCare brand name. As discussed in Note 12 in the Notes to Condensed
Consolidated Financial Statements, during the third quarter of 2003, the Company
sold the assets and related operational obligations of the utility line clearing
operations  of TruGreen  LandCare  for  approximately  $20 million in cash.  The
impact of this sale was not  material to the  Company's  consolidated  financial
statements  for 2003.  The results of the sold utility line clearing  operations
have been  reclassified  as  discontinued  operations  and are not  included  in
continuing  operations.  The TruGreen segment reported a six percent increase in
third quarter revenue to $418 million  compared to $396 million in 2002. For the
third quarter of 2003 the segment  reported an operating  loss of ($117) million
compared  with  operating  income of $75 million in the prior  year.  During the
third quarter of 2003, the Company recorded a non-cash impairment charge of $189
million  pre-tax  relating to goodwill  and  intangible  assets of its  TruGreen
LandCare operations.  For a further discussion on the impairment charge see Note
5 in the Notes to Condensed Consolidated  Financial Statements.  The decrease in
segment operating income primarily  reflects the impact of the impairment charge
as well as increased  labor and  insurance  costs in the  landscape  maintenance
operations,  partially offset by solid growth in the lawn care operations. Third
quarter  revenue  in the lawn  care  operations  increased  seven  percent  with
customer  counts up over four  percent  supported  by tuck-in  acquisitions  and
stronger  ancillary  sales and  increased  production  levels.  In the lawn care
operations,  operating income showed solid growth reflecting the larger customer
base and  increased  production,  however,  margins  declined  primarily  due to
increased  selling and marketing costs as well as increased  insurance costs. In
the landscape  maintenance business,  revenue increased one percent,  reflecting
slight growth in the core  maintenance  business and a flat level of enhancement
sales which include higher priced discretionary services such as seasonal flower
plantings.  Operating  income  margins  in  the  landscaping  business  declined
reflecting the impact of the impairment charge as well as increased direct labor
costs and higher  insurance  costs.  Capital  employed in the  TruGreen  segment
decreased 13 percent to $906 million at September  30, 2003  compared with $1.04
billion at September 30, 2002, primarily reflecting the impact of the impairment
charge, partially offset by tuck-in acquisitions. Capital employed is defined as
the segment's  total assets less  liabilities,  exclusive of debt balances.  The


                                       14
<PAGE>



Company  believes  these figures are useful to investors in helping them compute
return on capital  measures and therefore  better  understand the performance of
the Company's business segments.

The Terminix segment, which includes termite and pest control services, reported
a five  percent  increase in third  quarter  revenue to $247  million  from $235
million  in 2002 and 28  percent  growth  in  operating  income  to $32  million
compared  with $25  million  in 2002.  Revenue  growth was  supported  by higher
revenue from termite renewals,  new termite contracts,  as well as pest control.
This growth reflected higher unit pricing,  as well as an increase in the mix of
higher priced bait services  within the renewal base.  Operating  income margins
increased from 2002 reflecting  reduced labor and material costs as a percentage
of revenue in the  quarter.  Capital  employed  at  September  30, 2003 was $589
million, slightly below $594 million at September 30, 2002.

The American  Home Shield (AHS)  segment,  which  provides  home  warranties  to
consumers  that cover HVAC,  plumbing  and other home  systems  and  appliances,
reported a nine percent increase in revenue to $132 million from $122 million in
2002 and 10 percent growth in operating  income to $22 million compared with $20
million in 2002.  The  revenue  increase  reflected  strong  growth in  contract
renewals throughout the year. Sales of new contracts in the quarter increased by
double-digit  rates in all three of the primary  sales  channels:  real  estate,
direct-to-consumer,  and existing customer renewals.  Operating margins improved
as mild weather conditions in several regions resulted in a lower claims rate as
well as favorable  development of prior year claims.  Capital employed increased
31 percent to $128  million at  September  30,  2003  compared to $98 million at
September 30, 2002,  reflecting volume growth in the business requiring a higher
level of investment.  The  calculation  of capital  employed for the AHS segment
includes  approximately  $154 million and $128 million of cash, cash equivalents
and  marketable  securities  at September 30, 2003 and 2002,  respectively.  The
interest and  gains/losses  on these  investments  are reported below  operating
income as non-operating income/expense.

The ARS/AMS segment  provides direct HVAC and plumbing  installation  and repair
services under the ARS Service Express,  Rescue Rooter, and American  Mechanical
Services  (for large  commercial  accounts)  brand names.  Revenue for the third
quarter  totaled  $182  million in 2003,  a decrease  of six  percent  from $193
million in 2002. In the third quarter of 2003 the segment  reported an operating
loss of ($284)  million  compared  with $8 million of operating  income in 2002.
During the third  quarter of 2003,  the Company  recorded a non-cash  impairment
charge of $292 million pre-tax relating to goodwill and intangible assets of its
ARS/AMS segment. For a further discussion on the impairment charge see Note 5 in
the Notes to Condensed  Consolidated  Financial Statements.  Economic conditions
and cooler  weather have affected  this business  along with the entire HVAC and
plumbing  industries.  The decline in revenue  reflects a reduced  level of HVAC
construction  revenue in both the residential and commercial sectors, as well as
decreases in the plumbing and HVAC  service  lines,  partially  offset by modest
improvement in HVAC add-on/replacement activity. Operating income margins in the
third quarter declined primarily reflecting the impact of the impairment charge,
reduced  revenue levels as well as increased  sales and marketing  expenditures.
These factors were partially offset by improved service center gross margins and
strong control of indirect costs.  Higher  operating  income in the ARS business
was supported by margins from operations  which improved 170 basis points due to
pricing  initiatives,  cost  controls,  and the  closures  of  under  performing
branches.   Lower   earnings  at  AMS  offset  this  growth   leading  to  lower
profitability  in the  segment  overall.  Despite  increased  levels of  bidding
activity and backlog at AMS, the  contracts are  characterized  by lower margins
and longer duration, thereby reducing the near-term profit opportunity.  Capital
employed decreased 77 percent to $94 million at September 30, 2003 compared with
$407 million at  September  30, 2002,  reflecting  the impact of the  impairment
charge as well as lower working capital.

The Other Operations segment includes the Company's  ServiceMaster  Clean, Merry
Maids, and international  operations as well as its headquarters functions.  The
segment  reported  revenue of $40 million in 2003  compared  with $42 million in
2002.  In 2002 the Company  recorded a $6 million  licensing  fee related to the
Company's former Terminix United Kingdom  operations.  The franchise  operations
reported solid growth  reflecting the impact of  acquisitions at Merry Maids and
growth in disaster  restoration  services at ServiceMaster  Clean.  This segment
reported an operating  loss of ($7) million in 2003 compared with a loss of ($4)
million in 2002,  reflecting continued solid growth in positive operating profit
in the combined franchise operations offset by increased expenditures related to
marketing,  technology,  and  regulatory/compliance  initiatives  as well as the
impact of the license fee  received in 2002.  Capital


                                       15
<PAGE>



employed in this segment decreased to $52 million at September 30, 2003 from $69
million  at  September  30,  2002   reflecting  the  wind-down  of  discontinued
operations.

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO SEPTEMBER 30, 2002

CONSOLIDATED REVIEW

Revenue for the nine months of 2003 increased two percent to $2.76 billion.  The
Company reported a net loss from continuing operations in 2003 of ($245) million
and a loss from discontinued operations of ($2) million. The nine month net loss
of ($248)  million  compared with net income of $142 million in 2002 and diluted
earnings per share was a ($.84) loss in 2003 and $.46 in 2002.

Diluted earnings per share from continuing  operations for the nine months was a
($.83) loss in 2003  compared  with $.45 in 2002.  The 2003 results  include the
non-cash  impairment  charge of $1.29 for the nine months ($481 million pre-tax,
$383 million after-tax) that was discussed in the third quarter  comparison.  In
the second quarter of 2002, the Company recorded an  extraordinary  loss of $.03
per diluted share ($15 million  pre-tax,  $9 million  after-tax)  from the early
extinguishment  of debt.  As a result  of the  Company's  adoption  of SFAS 145,
"Rescission of FASB  Statements  No. 4, 44, and 64,  Amendment of FASB Statement
No. 13 and  Technical  Corrections",  this loss was  reclassified  into interest
expense  in 2003,  thereby  reducing  the  previously  reported  nine month 2002
diluted earnings per share from continuing operations by $.03. In addition,  the
2002  earnings  per share from  continuing  operations  for the nine  months was
reduced  $.01 to reflect  the  reclassification  of the  divested  utility  line
clearing operations to discontinued operations.

Operating  income  for the nine  months  of 2003 was a loss of  ($205)  million,
compared to income of $294  million in 2002.  Included in the 2003 amount is the
$481 million non-cash  impairment charge. The decline in operating income before
the charge reflects  decreased  profitability  in the landscaping  operations of
TruGreen and the AMS operations and increased spending on marketing,  technology
and  compliance  initiatives  at the  headquarters  level,  partially  offset by
continued strong growth at American Home Shield.

Cost of services  rendered and  products  sold  increased  slightly for the nine
months and  decreased  as a  percentage  of revenue to 66.8 percent in 2003 from
67.7 percent in 2002  reflecting  the business mix shift  described in the third
quarter discussion. Selling and administrative expenses increased 10 percent and
increased as a  percentage  of revenue to 23.1 percent in 2003 from 21.3 percent
in 2002 as a result  of the  change  in the mix of the  business  and  increased
expenditures relating to sales and marketing,  enterprise-wide  technology,  and
regulatory/compliance initiatives.

Net  interest  expense for the nine  months  decreased  $28  million  from 2002,
reflecting the reclassification of the $15 million pre-tax extraordinary loss in
2002 into interest  expense as well as lower  interest  expense  resulting  from
reduced interest rates and debt levels. The effective tax rate for 2003 and 2002
was three  percent  and 37  percent,  respectively.  As  discussed  in the third
quarter  comparison,  the tax provision in 2003  included a $98 million  benefit
related to the pre-tax  impairment charge of $481 million and the 2002 provision
included the one-time benefit from utilizing the prior year net operating losses
of  the  ServiceMaster  Home  Service  Center  operations  which  resulted  in a
reduction in the tax provision of approximately $7 million.

KEY PERFORMANCE INDICATORS

The table  below  presents  selected  metrics  related  to  customer  counts and
customer  retention  for the three most  profitable  businesses  of the Company.
These measures are presented on a rolling,  twelve-month basis in order to avoid
seasonal anomalies.



                                       16
<PAGE>




                                                   KEY PERFORMANCE INDICATORS
                                                       As of September 30,

                                                     2003             2002
                                                  ---------        ----------
  TRUGREEN CHEMLAWN -
     Growth in Full Program Contracts                  4%                2%
     Customer Retention Rate                        62.2%             62.4%

  TERMINIX -
     Growth in Pest Control Customers                  2%               11%
     Pest Control Customer Retention Rate           76.7%             76.7%

     Growth in Termite Customers                      -2%                8%
     Termite Customer Retention Rate                88.0%             89.5%

  AMERICAN HOME SHIELD -
     Growth in Warranty Contracts                      8%               16%
     Customer Retention Rate                        53.3%             53.0%


SEGMENT REVIEW

For the nine months,  the TruGreen  segment reported revenue of $1.06 billion in
2003, a four percent  increase over 2002. The segment reported an operating loss
of ($58) million  compared to operating income of $146 million in 2002. As noted
in the third quarter comparison, the 2003 results include a $189 million pre-tax
charge relating to goodwill and intangible  asset  impairment.  In the lawn care
operations,  revenue  increased five percent over 2002 reflecting  growth in the
number of customers,  which has been supported by tuck-in acquisitions,  as well
as the  realization  of price  increases.  TruGreen  ChemLawn  has  responded to
increasing  restrictions on telemarketing  by broadening its marketing  approach
through increased  expenditures on direct mail and other advertising.  This year
the Company has more than doubled its sales through non-telemarketing  channels,
which now comprise  approximately 20 percent of new sales volume.  Telemarketing
is a cost effective sales channel relative to other channels, so the Company has
experienced  an  increase in its sales and  marketing  costs as a result of this
shift. As the Company continues to reduce its dependency on telemarketing, there
will be a change in the timing of when new customers  are  obtained.  Typically,
telemarketing is a preseason  activity that is particularly heavy in January and
February.  Therefore,  the shift to more  non-telemarketing  sales will move the
addition of new customers from preseason activity to sales which are "in season"
from direct mail and other channels.  The Company expects to experience a slight
decline in lawn care  customer  counts  during the first  quarter of 2004 and an
increase  later in the year (March - May).  The rolling  twelve-month  retention
rate has declined slightly from 2002. Surveys indicate that cancellations due to
economic reasons have increased  relative to the prior year whereas those due to
quality  issues  have  decreased.  Operating  income  margins  in the lawn  care
operations declined in 2003 compared with 2002,  reflecting the higher sales and
marketing costs discussed above as well as increased  insurance  costs.  For the
fourth quarter,  the Company expects growth in both revenue and operating income
in the  lawn  care  operations  based on the  higher  customer  count,  a strong
production  schedule,  and a deeper  penetration  in southern  markets where the
Company  benefits  from a longer  production  season.  Revenue in the  landscape
maintenance  business  increased  two percent for the nine months,  reflecting a
significant increase in first quarter snow removal revenue,  partially offset by
a decline in the level of  enhancement  sales,  which have been  impacted by the
weak economy. Operating income margins in the landscaping operations declined in
2003 reflecting the impact of the impairment charge as well as a decreased level
of higher margin enhancement sales,  increased  insurance costs and higher sales
expenditures.

The Terminix  segment  reported a three percent increase in revenue for the nine
months to $733 million from $712  million in 2002 and  operating  income of $108
million,  consistent  with the prior  year.  The growth in revenue  reflects  an
increase in higher  priced bait  contracts in the renewal base.  Adverse  cooler
temperatures  earlier in the year that  impacted  many  regions  of the  country
significantly  impeded  the  development  of the  termite  swarm and other  pest
activity. As a result, the number of termite customers declined compared to last
year.  Retention  rates are  comparable to the prior year for pest control while


                                       17
<PAGE>

termite  retention rates have declined.  Operating income margins have decreased
reflecting  the reduction of new termite sales  activity,  implementation  costs
associated  with  the  unit's  new  information  system,  as well  as  increased
insurance  costs.  This decline was offset in part by lower damage claims in its
acquired Sears termite  customer base. The Company will be entering 2004 with an
enhanced  segmented  termite  offer  for  consumers.  This  offer  will  provide
consumers with the choice of receiving termite services through baiting stations
or liquid treatments.  The Company believes that providing consumers a choice in
services  will  increase the number of sales leads closed and result in improved
price  realization  on the bait  product.  The  Company  expects  the mix of its
termite  customers  to move from 85 percent  bait and 15  percent  liquid at the
beginning  of 2004 to 40 percent  bait and 60  percent  liquid by the end of the
year. The lifetime values of the Company's liquid and bait termite customers are
comparable,  however the earnings  cycles are  different  with liquid  customers
having less first year profitability and more in subsequent years.

The American Home Shield segment  reported a nine percent increase in revenue to
$352  million  for the nine  months  from $324  million in 2002 and a 29 percent
increase in operating income to $53 million compared to $41 million in 2002. The
increase in revenue  reflects strong  double-digit  growth in renewal  contracts
throughout  the  year.  Retention  rates  have  improved  in spite of  increased
mortgage   refinancing   activity,   which  has   resulted  in  an  increase  in
cancellations  in channels where the customer's  warranty payment is included in
the mortgage statement. Operating margins improved as mild weather conditions in
several regions resulted in a lower claims rate as well as favorable development
of prior year claims. Next year, if there is a return to more normalized weather
conditions, the Company expects some margin pressure in the American Home Shield
business.

The ARS/AMS  segment  reported  revenue  for the nine months of $506  million in
2003, a decrease of eight percent from $550 million in 2002. For the nine months
the segment  reported an operating  loss of ($282) million in 2003 compared with
$15  million  of  operating  income  in  2002.  As noted  in the  third  quarter
comparison,  the 2003 results  include a $292 million pre-tax charge relating to
goodwill and  intangible  asset  impairment.  The decrease in revenue  primarily
reflects a significant  reduction in HVAC construction activity as well as lower
plumbing  and  HVAC  repair   volume,   partially   offset  by  an  increase  in
add-on/replacement  HVAC activity. The add-on/replacement  increase is important
as the transaction includes the sale of a piece of equipment, which carries with
it a higher price point and total margin.  For the nine months operating margins
declined  primarily  reflecting the impact of the impairment charge as well as a
decrease in revenue and increased expenditures in sales and marketing.

The Other  Operations  segment  reported segment revenue of $114 million in 2003
compared  with  $111  million  in  2002,   reflecting   increases  in  both  the
ServiceMaster Clean and Merry Maids businesses. This was partially offset by the
impact of a $6 million  licensing  fee recorded in 2002 related to the Company's
former Terminix  United Kingdom  operations.  For the nine months,  this segment
reported an  operating  loss of ($26)  million in 2003  compared  with a loss of
($15) million in 2002,  reflecting  continued  growth in profits of the combined
franchise operations,  offset by higher costs related to marketing,  technology,
and compliance  initiatives  incurred at the  headquarters  level as well as the
impact of the license fee received in 2002.

FINANCIAL POSITION AND LIQUIDITY

Net cash flow provided  from  operations  for the quarter was $108  million,  $8
million  more than the same  quarter last year.  The Company  experienced  solid
working  capital  management  throughout  the  business.  Net cash provided from
operations for the nine months totaled $166 million,  compared with $243 million
in the previous  year.  The majority of the  difference  compared with the prior
year was experienced in the first quarter and is largely  attributed to a higher
level of  working  capital  usage.  Several  items  impact  the year  over  year
comparison of the cash flows from operations,  with the largest  component being
approximately $37 million in lower deferred revenue,  primarily  associated with
customer  prepayments  in TruGreen  ChemLawn  (approximately  $19  million).  In
addition, deferred revenue growth at Terminix decreased reflecting reduced sales
growth.  TruGreen ChemLawn typically receives prepayments from certain customers
for the full season in the fourth and first  quarters.  In  preparation  for the
2003  season,  prepayment  programs  were  launched  earlier than the prior year
resulting  in an  acceleration  of  prepayments  (and cash  flow) from the first
quarter to the fourth quarter,  relative to the prior year. The Company has also
lowered the  prepayment  discount  it offers  customers  that  resulted in fewer
customers  prepaying  overall.

                                       18
<PAGE>


The Company  believes the margin  benefit from a lower  discount  outweighed the
benefit from  receiving  payments  earlier.  The reduction in cash flows for the
nine months also relates to receivable  collections.  Although  many  businesses
continued to show improvements in receivables  management in 2003, there was not
the same level of incremental improvement that was experienced in 2002 when both
TruGreen  LandCare and ARS made  substantial  improvements  in their  receivable
levels.  The cash flow  comparison was also impacted by the timing of insurance,
bonus and vendor payments,  with an increased level of payments in 2003 compared
to 2002.  Consistent with historical  patterns,  the last quarter of the year is
expected to experience  stronger cash flow and the Company still anticipates its
cash  from  operations  for the year to be  significantly  in  excess of its net
income.  Management  expects  that funds  generated  from  operations  and other
existing  resources  will  continue to be adequate  to satisfy  ongoing  working
capital needs of the Company.

Cash and  marketable  securities  totaled $261  million at  September  30, 2003,
approximately  $41  million  below  the  level  at the  beginning  of the  year.
Approximately  $154  million of the current  year  amount was at  American  Home
Shield supporting regulatory requirements. The Company believes the cash balance
will build  throughout the end of the year due to the seasonally  high levels of
cash flows generated in the fourth quarter.  During 2002, the Company  completed
its debt reduction program announced in October 2001. As a result of strong cash
flows and the net proceeds received from the Company's 2001 dispositions,  total
debt has been  reduced and  represents  the  Company's  lowest debt level in six
years.  Total  debt at the end of the  third  quarter  was  $825  million,  down
slightly  from the  year-end  level of $835  million.  The 2002  debt  reduction
program also  enabled the Company to lengthen  its maturity  profile by focusing
debt reductions on shorter maturities. Approximately 68 percent of the Company's
debt now matures  beyond five years and 42 percent  beyond  fifteen  years.  The
Company's next significant debt maturity is not until 2005.

The Company  maintains a three-year  revolving credit facility for $490 million,
which will expire in December  2004. As of September 30, 2003 the Company had no
borrowings outstanding,  but had issued approximately $149 million of letters of
credit  under  the  facility  and,   therefore,   had  unused   commitments   of
approximately  $341  million.  The  Company  also has  $550  million  of  senior
unsecured debt and equity  securities  available for issuance under an effective
shelf  registration  statement.  In  addition,  the Company  has an  arrangement
enabling it to sell,  on a revolving  basis,  certain  receivables  to unrelated
third  party  purchasers.  At  September  30,  2003,  there were no  receivables
outstanding  that had been sold to third  parties.  The  agreement  is a 364-day
facility that is renewable at the option of the purchasers. The Company may sell
up to $65 million of its eligible  receivables to these purchasers in the future
and therefore has immediate access to cash proceeds from these sales. The amount
of  eligible  receivables  varies  during the year based on  seasonality  of the
business  and will at times  limit the  amount  available  to the  Company.  The
Company also  maintains  lease  facilities  with banks totaling $95 million that
provide for the  acquisition  and  development of properties to be leased by the
Company.  There are  residual  value  guarantees  of these  properties  up to 82
percent of the fair market value of the properties. At September 30, 2003, there
was approximately $73 million funded under these facilities.  Of the $95 million
in facilities,  $80 million  expires in October 2004 and $15 million  expires in
January 2008. Approximately $20 million of these leases that involve constructed
properties  have been  included on the balance sheet as assets with related debt
as of September  30, 2003 and $15 million as of December 31, 2002.  Lastly,  the
majority of the Company's vehicle fleet is leased through operating leases.  The
lease terms are  non-cancelable  for the first  twelve-month  term, and then are
month-to-month  leases,  cancelable at the Company's option.  There are residual
value  guarantees  (ranging  from 70 percent to 87 percent of original  value at
lease inception,  declining over the life of the lease) on these vehicles, which
historically  have not resulted in significant  net payments to the lessors.  At
September  30, 2003,  there was  approximately  $270  million of residual  value
relating to the Company's fleet.

The following table presents the Company's obligations and commitments:
<TABLE>


                                                        2004 and   2006 and      2008 and
(IN MILLIONS)                        TOTAL     2003       2005       2007       LATER YEARS
---------------------------------------------------------------------------------------------
<S>                                  <C>        <C>       <C>        <C>           <C>
Debt balances                        $825       $8        $181       $71           $565
Non-cancelable operating leases       292       20         126        83             63
---------------------------------------------------------------------------------------------
Total amount                       $1,117      $28        $307      $154           $628
=============================================================================================
</TABLE>



                                       19
<PAGE>


There  have been no  material  changes in the terms of the  Company's  financing
agreements  since December 31, 2002. As described in the Company's latest Annual
Report to Shareholders, the Company is party to a number of debt agreements that
require  it  to  maintain  certain  financial  and  other  covenants,  including
limitations on indebtedness  and interest  coverage  ratio.  In addition,  under
certain  circumstances,  the agreements  may limit the Company's  ability to pay
dividends and  repurchase  shares of common  stock.  These  limitations  are not
expected to be a factor in the Company's  future  dividend and share  repurchase
plans.  Failure by the Company to maintain these  covenants  could result in the
acceleration of the maturity of the debt. At September 30, 2003, the Company was
in compliance  with the covenants  related to these debt agreements and based on
its operating outlook for the remainder of 2003,  expects to be able to maintain
compliance  in the  future.  The  non-cash  impairment  charge  associated  with
goodwill and other  intangible  assets recorded in the quarter do not affect the
Company's  compliance  with its lending  arrangements  and its covenants are not
affected by unusual non-cash charges.

The assets and  liabilities  relating to the  discontinued  operations have been
classified  in separate  captions on the  Condensed  Consolidated  Statements of
Financial  Position.   Assets  of  the  discontinued  operations  have  declined
reflecting cash collections on receivables.  The liabilities  from  discontinued
operations  have declined as a result of a cash  adjustment to the selling price
of the 2001  disposition  of the  Company's  European  pest control and property
services operations as well as certain other payments.

Receivables and inventories  increased from year-end levels,  reflecting general
business growth and increased seasonal activity. Days sales outstanding improved
in the majority of the companies.  Prepaid  expenses and other assets  increased
modestly from year-end  primarily  reflecting  pre-season  advertising costs and
annual  repairs  and  maintenance  procedures  that are  performed  in the first
quarter at  TruGreen  ChemLawn.  These  costs are  deferred  and  recognized  in
proportion  to the contract  revenue  over the  production  season,  and are not
deferred  beyond the calendar  year-end.  Deferred  customer  acquisition  costs
increased  slightly  reflecting the seasonality in the lawn care operations.  In
the winter and early spring,  this business sells a series of lawn  applications
to customers that are rendered primarily in March through October. The lawn care
operations incur and defer incremental  selling expenses at the beginning of the
year that  directly  relate to  successful  sales in which the revenues  will be
recognized  in later  quarters.  These  costs are  deferred  and  recognized  in
proportion  to the contract  revenue  over the  production  season,  and are not
deferred beyond the calendar year-end. Deferred revenues decreased from year-end
reflecting  increased  volume in termite baiting  contracts that was offset by a
decrease in customer prepayment balances for lawn care services.

Capital  expenditures,  which include  recurring  capital needs and  information
technology projects, are below prior year levels. In the prior year, there was a
significant  payment  relating to the residual  value  guarantees  for leases on
assisted  living  facilities  that were  subsequently  sold.  The Company has no
material  capital  commitments at this time.  Tuck-in  acquisitions for the nine
months ended  September 30, 2003 and 2002 were $30.9 million and $13.9  million,
respectively.  The consideration  consisted of cash payments and seller financed
notes. The 2003 acquisitions occurred primarily at TruGreen ChemLawn.

Total  shareholders'  equity was $844  million at  September  30, 2003 and $1.22
billion at December 31, 2002.  The  decrease  reflects  earnings in the business
offset by the  aforementioned  charge for impaired assets,  cash dividends,  and
share  repurchases.  Cash  dividends paid directly to  shareholders  totaled $94
million  or $.315  per  share  and $91  million  or $.305 per share for the nine
months ended  September 30, 2003 and 2002  respectively.  In October  2003,  the
Company  paid a fourth  quarter  cash  dividend of $.105 per share  (compared to
$.105 per share paid last year) and declared a first  quarter  cash  dividend of
$.105 per share payable on January 30, 2004. The fourth quarter dividend payment
resulted in an annual  payment for 2003 of $.42 per share,  a 2.4% increase over
2002. This year is the 33rd  consecutive  year of annual growth in dividends for
the Company.  The Company  approves its actual  dividend  payment on a quarterly
basis and periodically reviews its dividend policy, share repurchase program and
other capital structure  objectives.  Through the first nine months of 2003, the
Company has repurchased $57 million of its shares and anticipates purchasing $15
to $20  million of  additional  shares in the last  quarter  of 2003.  Decisions
relating  to any  future  share  repurchases  will  take  various  factors  into
consideration such as the Company's desire to maintain investment grade ratings,
general business conditions, and other strategic investment opportunities.


                                       20
<PAGE>





FORWARD LOOKING STATEMENTS

THE COMPANY'S FORM 10-Q FILING CONTAINS STATEMENTS CONCERNING FUTURE RESULTS AND
OTHER MATTERS THAT MAY BE DEEMED TO BE  "FORWARD-LOOKING  STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE  SECURITIES  LITIGATION  REFORM ACT OF 1995.  THE COMPANY
INTENDS THAT THESE  FORWARD-LOOKING  STATEMENTS,  WHICH LOOK FORWARD IN TIME AND
INCLUDE  EVERYTHING  OTHER THAN HISTORICAL  INFORMATION,  BE SUBJECT TO THE SAFE
HARBORS   CREATED   BY  SUCH   LEGISLATION.   THE   COMPANY   NOTES  THAT  THESE
FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES THAT COULD AFFECT ITS
RESULTS OF  OPERATIONS,  FINANCIAL  CONDITION OR CASH FLOWS.  FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER  MATERIALLY  FROM THOSE EXPRESSED OR IMPLIED IN A
FORWARD-LOOKING  STATEMENT INCLUDE THE FOLLOWING (AMONG OTHERS): EXTREME WEATHER
CONDITIONS THAT AFFECT THE DEMAND FOR THE COMPANY'S SERVICES; COMPETITION IN THE
MARKETS  SERVED BY THE  COMPANY;  LABOR  SHORTAGES  OR  INCREASES IN WAGE RATES;
UNEXPECTED  INCREASES IN OPERATING COSTS, SUCH AS HIGHER INSURANCE,  HEALTH CARE
OR FUEL PRICES;  INCREASED  GOVERNMENTAL  REGULATION OF  TELEMARKETING;  GENERAL
ECONOMIC  CONDITIONS  IN THE UNITED  STATES,  ESPECIALLY AS THEY MAY AFFECT HOME
SALES OR CONSUMER SPENDING LEVELS; TIME AND EXPENSES ASSOCIATED WITH INTEGRATING
AND WINDING DOWN  BUSINESSES;  AND OTHER FACTORS  DESCRIBED FROM TIME TO TIME IN
DOCUMENTS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION.





                                       21
<PAGE>



                    QUANTITATIVE AND QUALITATIVE DISCLOSURES
                                ABOUT MARKET RISK

The economy and its impact on discretionary consumer spending, labor wages, fuel
costs,  insurance  costs and medical  inflation  rates could be  significant  to
future operating earnings.

The  Company  does  not hold or  issue  financial  instruments  for  trading  or
speculative   purposes.   The  Company  has  entered  into  specific   financial
arrangements  in the normal course of business to manage  certain  market risks,
with a policy of matching  positions  and  limiting  the terms of  contracts  to
relatively short durations.  The effect of financial instrument  transactions is
not material to the Company's financial statements.

The Company  generally  maintains  the majority of its debt at fixed rates (over
95% of total debt at December 31, 2002 and September  30, 2003) and,  therefore,
its exposure to interest rate  fluctuations  is not significant to the Company's
results of operations.  The payments on the approximately $73 million of funding
outstanding  under the Company's real estate  operating lease facilities as well
as its  cancelable  vehicle  fleet and  equipment  operating  leases are tied to
floating  interest  rates.  However,  the Company does not expect  interest rate
fluctuations to be significant to the Company's results of operations.

The Company has several debt and lease  agreements  where the  interest  rate or
rent payable under the agreements  automatically  adjust based on changes in the
Company's credit ratings.  While the Company is not currently expecting a change
in its credit ratings, based on amounts outstanding at September 30, 2003, a one
rating category improvement in the Company's credit ratings would reduce expense
on an annualized  basis by  approximately  $0.7 million.  A one rating  category
reduction  in  the  Company's  credit  ratings  would  increase  expense  on  an
annualized basis by approximately $1.4 million.

The following table summarizes  information  about the Company's fixed rate debt
instruments  as of December 31, 2002 and presents the  principal  cash flows and
related  weighted-average  interest rates by expected  maturity dates.  The fair
value of the  Company's  fixed  rate  debt was  approximately  $880  million  at
December 31, 2002.

                             Expected Maturity Date
                           --------------------------
                                                                There-
 (In millions)       2003    2004    2005     2006    2007      after     Total
--------------------------------------------------------------------------------
Fixed rate debt      $31     $24     $151     $11     $59       $559      $835
  Avg. Rate          4.2%    4.8%    8.2%     6.0%    6.7%      7.5%      7.2%
================================================================================





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                             CONTROLS AND PROCEDURES


The Company's  Chairman and Chief Executive  Officer,  Jonathan P. Ward, and the
Company's  Chief  Financial  Officer,  Steven C.  Preston,  have  evaluated  the
Company's disclosure controls and procedures as of the end of the period covered
by this report.

Messrs.  Ward and Preston have concluded that the Company's  disclosure controls
and  procedures  provide  reasonable  assurance  that the  Company  can meet its
disclosure  obligations.  The Company's  disclosure  controls and procedures are
based  upon  a  roll-up  of  financial  and  non-financial   reporting  that  is
consolidated in the principal  executive office of the Company in Downers Grove,
Illinois.  The reporting process is designed to ensure that information required
to be  disclosed  by the Company in the reports that it files with or submits to
the Commission is recorded,  processed,  summarized and reported within the time
periods specified in the Commission's rules and forms.

There were no changes in the Company's internal control over financial reporting
that  occurred  during  the  Company's  most  recent  fiscal  quarter  that have
materially  affected,  or  are  reasonably  likely  to  materially  affect,  the
Company's internal control over financial reporting.




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PART II. OTHER INFORMATION

ITEM 1:  LEGAL PROCEEDINGS

As previously  disclosed in the Company's  Form 10-Q for the quarter ended March
31, 2003, The Terminix  International Company Limited Partnership,  a subsidiary
of the Company,  and the Office of the Attorney General of the State of New York
have been involved in discussions  regarding Terminix's  compliance with Article
33 of the New York Environmental  Conservation Law regulating the application of
pesticides.  Pursuant  to the  entry of a  supplemental  consent  order  entered
September  24,  2003,  the  parties  settled  this  matter.   Without  admitting
liability,  Terminix  agreed to pay the State  $759,000  and the State agreed to
release Terminix from its allegations as to the disputed claims.

ITEM 6(A): EXHIBITS

EXHIBIT NO.   DESCRIPTION OF EXHIBIT
-----------  -------------------------------------------------------------------
31.1         Certification of Chief Executive Officer Pursuant to Rule
                13a - 14(a) or 15d - 14(a), as Adopted Pursuant to Section
                302 of the Sarbanes-Oxley Act of 2002

31.2         Certification of Chief Financial Officer Pursuant to Rule
                13a - 14(a) or 15d - 14(a), as Adopted Pursuant to Section
                302 of the Sarbanes-Oxley Act of 2002

32.1         Certification of Chief Executive Officer Pursuant to Section 1350
                of Chapter 63 of Title 18 of the United States Code, as Adopted
                Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2         Certification of Chief Financial Officer Pursuant to Section 1350
                of Chapter 63 of Title 18 of the United States Code, as Adopted
                Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



ITEM 6(B):    REPORTS ON FORM 8-K

A report on Form 8-K was  furnished  on  November  5, 2003.  The  purpose of the
report was to provide under Item 12, the press release  issued by the Company on
November 5, 2003  announcing  the  preliminary  financial  results for the third
quarter of 2003.

A report on Form 8-K was furnished on November 5, 2003 reporting  under Item 12.
The  purpose  of  the  report  was  to  restate  previously  reported  quarterly
consolidated  statements of income and quarterly business segment disclosures to
reflect the  reclassification  to discontinued  operations of the Company's sold
utility line clearing business.

A report on Form 8-K was  furnished  on September  17, 2003.  The purpose of the
report was to provide under Item 5, the press  release  issued by the Company on
September 16, 2003 announcing the simultaneous webcast of the Company's Investor
Meeting on September 17, 2003.

A report on Form 8-K was furnished on September 17, 2003 reporting under Item 9.
The purpose of the report was to provide under Item 7, the presentation  made by
the Company at its Investor  Meeting on September  17,  2003.  The  presentation
provides a strategic outlook of the business as provided by the business leaders
of the Company.

A report on Form 8-K was furnished on August 5, 2003.  The purpose of the report
was to provide under Item 12, the press release  issued by the Company on August
5, 2003 announcing the preliminary  financial  results for the second quarter of
2003.


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<PAGE>




                                   SIGNATURE


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

Date:  November 14, 2003


                          THE SERVICEMASTER COMPANY
                          (Registrant)

                          By:                    /S/STEVEN C. PRESTON
                            ----------------------------------------------------

                                                     Steven C. Preston
                          Executive Vice President and Chief Financial Officer








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